(1)
General
Provisions.
(a) Except as set
forth in 211 CMR 67.08(2), and as may otherwise be established by the
Commissioner, a group shall follow the statutory accounting practices
prescribed by the National Association of Insurance Commissioners for all
property and liability insurance companies.
(b) As part of his or her authority to
examine groups under M.G.L. c. 152, § 25I, the Commissioner may elect to
obtain an independent analysis of a group's reserves, with expenses of such
analysis assessed against the group.
(c) After a group has been in operation for
three years, so long as a group has continued to meet the requirements of 211
CMR 67.08(2), the Commissioner may grant, upon petition of the group, a
reduction of the requirements applicable to the group that are set forth in 211
CMR 67.08(2)(d) and
67.21.
In reviewing a group's petition, the Commissioner may consider such financing
alternatives or insurance mechanisms proposed by the group. At the expense of
the group, the Commissioner may engage such financial, insurance or other
experts deemed necessary by the Commissioner to consider a petition submitted
by a group in accordance with 211 CMR 67.08.
(d) After a group has been in operation for
three years, the Commissioner may, for good cause, require an increase in the
requirements applicable to the group that are set forth in 211 CMR 67.08(2)(d)
and
67.21.
Such a required increase may be appealed to the Commissioner and may be altered
or revoked if the Commissioner finds, after notice and a hearing, that there
was not good cause to support such an increase.
(2)
Minimum Financial
Requirements.
(a)
Reserves:
1. Each
group shall establish and maintain actuarially sound loss reserves which shall
comply with the standards for an actuarially fully funded group as defined in
211 CMR 67.02. Each
group containing private employers shall also establish and maintain
appropriate bad debt reserves.
2. A
group shall be subject to the National Association of Insurance Commissioners
(NAIC) minimum reserve standard for loss and loss adjustment expense (LAE)
reserves.
3. A group may elect to
record loss reserves on a discounted basis at the rate and in the manner
prescribed by the Internal Revenue Service. These discounted reserves shall be
fully collateralized, and may be invested according to M.G.L. c. 175, § 63
or in mutual funds whose underlying investments comply with M.G.L. c. 175,
§ 63.
(b)
Liquidity: any group whose liquid assets are less than
the sum of its undiscounted loss reserves and its unearned premium reserve,
ignoring any unearned premiums related to premium installments not yet due or
any approved retrospective rate credits, shall be required to provide security,
in addition to that required under 211 CMR 67.08(2)(d), equal to the
difference. The security shall be in the form of:
1. cash, including certificates of deposit,
in a designated bank account in a bank that is a member of the Federal Reserve
System;
2. short term U.S. Treasury
securities;
3. letters of credit
meeting NAIC standards and issued by banks that are members of the Federal
Reserve System; or
4. any other
form of security acceptable to the Commissioner.
(c)
Net Worth:
1. The provable net worth of all the members
of the group combined as reflected in their certified financial statements
shall at all times be at least $1,000,000, and shall at all times equal at
least four times the group's standard premium.
2. At the Commissioner's discretion, up to
25% of the premium of the group may be contributed by members with negative net
worth that do not have guarantees from other sources of their ability to pay
premiums and assessments. The group shall provide written notice to all members
prior to the approval of a new member with negative net worth. In the event an
existing member of the group has negative net worth and has no such guarantee,
the board of trustees, or a committee of the board of trustees, shall review
the status of the member.
3.
Members which do not have certified financial statements shall submit a
financial statement compiled by a Certified Public Accountant, including all
the same schedules and notes requested in
211 CMR
67.06(2)(c)3.
4. Any member with compiled financial
statements or which either belongs to another workers' compensation
self-insurance group in another state or which is a qualified self-insurer in
another state, shall be subject to the following limitation: the net worth of
such member will not be used in calculating the combined provable net worth of
the members of the group, but its premium will be used to calculate the total
premium of the group.
5. Any member
comprising more than 20% of a group's premium or net worth
shall submit complete audited statements, the additional cost of which may be
borne by the group.
(d)
Security:
1. For any
group containing private employers, security shall be 10% of
the group's standard premium, but in no case shall the security be less than
$100,000. The amount of the security deposit or bond shall be adjusted annually
by the group based upon changes in the group's in-force premium, as determined
from its annual statements; provided, however, that any time a group's in-force
premium grows by more than 10%, it shall adjust its security in accordance with
211
CMR 67.11(7).
2. Security shall be provided by either a
surety bond or security deposit, or any combination thereof Any surety bond
provided shall be issued by a corporate surety company licensed to transact
surety business in the Commonwealth, and which is not affiliated with the
group's administrator, other surety(ies) for the group, excess insurer(s) or
reinsurer(s) for the group, or any member of the group. The bond shall be in a
form prescribed or approved by the Commissioner.
3. Any security deposit provided shall be in
the form of bonds or other evidences of indebtedness issued, assumed, or
guaranteed by the United States of America, or by an agency or instrumentality
thereof, or certificates of deposit which meet the standards imposed by the
NAIC, in a bank which is a member of the Federal Reserve System, or any bond or
security issued by a state of the United States of America and backed by its
full faith and credit.
4. The
surety bond or security deposit, or both, shall be for the benefit of the
Commonwealth solely to pay claims and associated expenses and payable on the
failure of the group to pay the workers' compensation benefits which it is
legally obligated to pay. If the group has a fund deficit that has not been
cured within 90 days of the date the group becomes aware of its existence, the
group shall notify the surety and the Commissioner of the fund deficit
immediately.
(3)
Financial Reporting
Requirements. A group shall submit to the Commissioner the
following financial reports:
(a) Annual and
quarterly statements on the forms prescribed by the NAIC for property and
casualty insurers, in accordance with the Commissioner's annual statement
instructions and all applicable laws and regulations. The annual statement
shall be accompanied by an opinion on loss reserves certified by a qualified
actuary and shall demonstrate the group's compliance with the minimum financial
requirements set forth in 211 CMR 67.08(2). Reports shall be submitted on the
following schedule:
Annual Statement: due on or before the
first day of the third month following the end of the group's fund year.
Quarterly Statements: due on or before
the 45th day following the end of the group's first, second, and third fiscal
quarters.
(b) On or before
the last day of the sixth month following the end of the group's fund year, a
statement of financial condition audited by an independent Certified Public
Accountant, including, but not limited to, actuarially fully funded reserves,
for known claims and claim adjustment expenses, unearned premiums, including
both direct and reinsurance, and bad debts. Audits shall be subject to the
provisions of
211 CMR 26.00: Annual
Financial Reporting for Years Ending 2010 and After.
(c) The Commissioner may prescribe the form
and frequency of other reports which may include, but not be limited to,
payroll audit reports, summary loss reports and other financial
statements.
(4)
Distributions to Members. If actuarially sound, a
group may declare and accrue dividend liabilities, retrospective rate credits,
or similar distributions, from a fund year's operating activities during that
fund year, but it shall not begin distributions for that fund year until at
least 24 months after the end of the fund year. No distribution, other than
dividends, shall be made without the prior approval of the Commissioner. Groups
shall make distributions in accordance with the following schedule:
First year (24 months after end of fund
year): up to 25% of the calculated distribution amount.
Second Year (36 months after end of fund
year): up to 33% of the recalculated distribution amount.
Third Year (48 months after end of fund
year): up to 50% of the recalculated distribution amount.
Fourth Year and ensuing years (from 60 months after
end of fund year): up to 100% of the recalculated distribution
amount.
Each member shall be given a written description of the group's
refund/assessment plan at the time of application for membership. A refund for
any fund year shall be paid only to those employers who remain participants in
the group for the entire fund year. Payment of a refund based on a previous
fund year shall not be contingent on continued membership in the group after
that fund year.
(5)
Remedial Procedures. In the event that the annual
reserve report, required under 211 CMR 67.08(3)(a), shows that a group has not
satisfied the minimum financial requirements prescribed in 211 CMR 67.08(2),
the group shall submit a written plan to the Commissioner, at the same time as
it submits the annual reserve report, describing what steps the group intends
to take to bring the group into compliance promptly.
(6) Failure of a group to make timely
submissions of required reports shall be punishable by a fine of $100 per day
per report until the reports are filed, as provided in M.G.L. c. 152, §
25S.
